Legislators in Kentucky have stripped provisions from a proposed bill that sought to establish new service requirements for all real estate licensees in the state.
The Kentucky Real Estate Commission proposed the legislation, which would have allowed the commission to establish a minimum level of services that real estate licensees must perform after entering into a written listing or brokerage agreement with a client. The original language in the bill also sought to “declare that failing to provide minimum services constitutes gross negligence subject to discipline.”
Norman Brown, executive director for the commission, said today that the U.S. Department of Justice and Federal Trade Commission had expressed reservations about the legislation. The commission sought to require that all real estate agents receive escrow checks, receive property offers and also work with clients to present all offers, Brown said.
Legislation and real estate regulations with similar language have been proposed in several other states — and opposed by the federal agencies, which have said such measures can restrict consumer choice and have an anticompetitive effect on the real estate marketplace. Supporters have said that the measures are needed to prevent confusion by consumers and other real estate agents who attempt to work with real estate licensees that offer limited real estate services, such as the placement of a property in a multiple listing service for a flat fee.
Also, supporters have said that the measures seek to reinforce laws of agency that are intended to ensure that consumers receive some basic level of service from real estate professionals. Meanwhile, opponents have questioned why state officials would seek to limit the available real estate service options for consumers and potentially drive up the cost of real estate services. In several cases, state legislators and governors have approved minimum-service legislation even after federal agencies announced opposition to the measures. Realtor trade groups have typically backed the legislation.
The Kentucky legislation, Senate Bill 43, would have allowed the real estate commission to define “through administrative regulations” what services should be mandated for real estate licensees, but all language related to minimum services has been stricken from the bill, which passed the Senate on Wednesday in a 37-0 vote and has moved to the state’s House of Representatives.
Bruce Hahn, president of the American Homeowners Grassroots Alliance, an interest group that lobbied against the minimum-service aspects of the legislation, said, “I believe that the combined efforts opposing the minimum-services legislation by DOJ, FTC, (the alliance), consumers and minimum-service brokers had a big role in the decision to drop the minimum-services language. I suspect the commission will now be very reluctant to try to propose a minimum-services regulation now that it has been rejected by the Legislature.”
Hahn said there are examples of legislators and Realtor trade group officials working to propose new disclosure requirements as an alternative to a minimum-service mandate. Such proposals would allow limited-service real estate businesses to continue to operate as they have while ensuring that customers sign off on a disclosure statement to recognize all of the services they will and will not receive in a real estate transaction. “Future conflict may be avoided or at least substantially reduced” by pursuing this option, Hahn added.
The Kentucky Real Estate Commission is no stranger to federal agencies that monitor antitrust compliance. The Justice Department filed a lawsuit against the Kentucky Real Estate Commission in March, charging that the agency limited competition among real estate brokers in the state by establishing regulations that prohibit real estate companies from offering rebates and other inducements to attract consumers.
The commission settled the lawsuit in July, passing an emergency regulation that reversed the state’s restrictions on real estate rebates and inducements.
Brown said that commission officials will examine whether there are already state regulations in place that provide guidance on the issue of minimum-service restrictions. “We’re still looking at that. We may have regulations that already cover that.” The commission will also consider whether to submit another proposal to the Legislature next year, he added.
“We’re taking a little more time since there were some reservations by the FTC And DOJ. They contacted the senator who sponsored the legislation and said they had reservations about it,” Brown said.
Charlie Borders, the Kentucky senator who introduced the legislation, could not immediately be reached for comment today. And the Justice Department had no immediate comment today about the agency’s response to the legislative proposal in Kentucky.
The Kentucky Real Estate Commission proposed the legislation after hearing complaints from the real estate brokerage community about transactions in which a seller is not fully represented by a listing agent, Brown said. “They don’t want to put themselves at a liability to have an agency problem. We get concerns all the time about agents who are buyer’s agents getting into agency problems,” as agents representing buyers can be confused about whether to assist the seller with duties that are typically handled by the seller’s agent.
“There is a courtesy of services you should have so you don’t create problems for consumers and you don’t create problems for buyer’s agents,” he said, adding that the commission is looking out for consumers while the federal agencies are focusing on competitive issues. “It’s a tough balancing issue.”
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